Unlike retail sales, industrial production, new orders or a number of other economic data, the employment report comes with a lot of extra filler. You need to dig down into the ingredients to figure what is and what is not good. On the surface we have seen a recent deceleration, but nothing which looks out of the ordinary post 2009.
But what do we see when we dig?
Productivity growth at post war lows! Employment data is producing less and less and becoming in GDP, asset price support and income growth terms, increasingly diluted.
Health care and social assistance has been key to recent employment growth but the growth rate is falling off. Looking after an aging society may not produce the growth needed to sustain the liabilities attached to the economic frame. Indeed, many of these liabilities may not be adequately accounted for within asset valuations.
If we exclude health care and social assistance from employment date, employment levels only returned to growth on an annual basis in October 2014, making the current employment growth cycle a short one to date.
Add food service and drinking places employment (to health care and social assistance) and we have the sum total of jobs created since the recession started. But even food services and drinking places employment growth has shown a recent declining trend. Again, the income/productivity dynamics of this type of employment is unsupportive of the current asset/liability frame.
Retail trade employment growth was especially strong during the latter part of 2015 (dominated by motor vehicles and parts dealers), although we have seen weakening of late. Watch out for MVP employment (which means an eye on consumer credit) and buildings and materials (which means an eye on construction). There has been weakness on the retail side that is obscured by recent April data.
The weakness in the goods producing industries, construction excepted, and trade and transport is noteworthy in the light of weakness in output, new orders and exports. These are all key industries in terms of the economy’s ability to provide generate long term GDP, income and productivity growth. Manufacturing and trade are important cogs in the economic machine.
The one relatively strong point in the data remains the professional and technical sub sector of professional services. Relative to service sector (and hence all employment) it has continued to rise in importance, but the growth rate of this dynamic has slowed in the current cycle. This may not be a positive for income flows if it represents a movement towards rationalisation of processes (reduced employment at the front end and a small increase at the operational core), reflective of cost reduction and other operational rationalisation.
Long term dynamics – employment growth rates/part time versus full time/self employment versus employed – are all weakening or stuck in a post recession rut. A lot of recent employment gains look like they are due to a rise in part time employment (which may be a positive if it signals increasing willingness to hire) so growth fundamentals are still very weak and possibly weakening.
What makes employment growth and the make up of employment growth so important is that it impacts productivity and earnings growth, two key factors that require vigour if we are to accommodate high debt levels and high asset prices. Other relevant relationships include capital investment (historically weak), income inequality and a slowdown in population growth as well as a shift in its demographics. Finally, with weak global trade dynamics we have considerable pressure on areas of the economy that have traditionally been important to productivity and earnings growth.
There is nothing wrong in a declining population and declining growth rates of employment as long as the relationship between asset values (debt/equity) and consumption/investment dynamics are in keeping. I very much doubt whether it is and this is why employment growth today is a much more important indicator of financial health than it is fundamental economic health. There are so many straws in the wind!
And the graphics:
Labour productivity growth, annualised over rolling 5 year periods:
And manufacturing in particular:
We can see health care and education as the single biggest component of new jobs created since early 2015: chart shows monthly change based on smoothed 6 month rolling average data:
A significant surge since early 2015:
Rates are slowing based on smoothed data analysis:
As a % of total employment health care and social assistance has become increasingly important since 2014:
Take away health care and social assistance and you see that private sector employment has only recently recovered previous cyclical highs and that the ability to recover from previous cyclical highs has been a durable feature of the economic landscape post 200s:
Home health care has been a particularly important aspect of this increase in employment:
Since early 2007 practically all the increase in employment has been from two sectors of the economy: health care and food and services drinking places:
But even food services and drinking places is seeing a tail off in strength following a strong end to 2015:
Retail has also been important to employment growth, especially in the latter part of 2015 but the trajectory has weakened albeit from a strong surge in hiring:
The most important component of retail trade employment has been motor vehicles and parts dealers, a sector itself exposed to what many are calling a peak in motor vehicle sales. So I would watch this space!
And also building materials and garden supplies which has shown strength in tandem with construction employment.
Post recovery professional and business services employment has been the biggest component of employment gains. Employment growth here has had distinct cyclical trends:
A large component of this has been administrative and support services:
But it had been hit in the most recent as well as previous recession, only recovering its previous nominal highs later on in the recovery:
The sub sector to watch out for is professional and technical services:
Leisure and hospitality, another important sector with evident cyclical swings has also shown weakness of late:
Educational services has also been positive but not of critical importance:
Goods producing, trade and transportation
Where we have concern is in goods producing sectors (ex construction) and trade and transport:
Longer term trends and structural conflicts
Looking outside of the various sectors and at big picture dynamics we see a number of long term trends still in place:
Employment growth is still weak relative to pre 2000 norms:
Employment to population ratios, indicative of capital investment needs and consumption dynamics likewise remain at lower than recent history:
Full time employment may well have recovered its pre recession highs but not if we adjust for population growth:
Goods producing industry employment remains well below historical levels:
The longer term trend increase in employment gives a better picture of actual productive and effective consumption/investment dynamics:
Even though actual growth rates (if we ignore dynamics such as healthcare and social assistance and food service jobs) are now superior to the prior cycle:
But we can put the above in another perspective: recovery in employment has only just surpassed the very weak post 2001 recovery and well below historical employment growth dynamics:
The service sector continues to expand relative to total employment and seems to be given impetus by each successive recession:
Other fundamentals remain in place: the post crisis increase in part time employment, the decline in self employment (incorporated and non incorporated):
The part time employment data is noteworthy in the light of relatively strong employment data pre April:
First off we have a notable increase in the monthly data (smoothed) since the start of the year:
Secondly if we look at six monthly data we find a post recession high in part time employment data which detracts from the strength of the overall employment numbers:
Multiple job holders, as you may well expect with a rise in part time, has also shown a recent and significant surge: